Asian equities rally on Fed rate cut bets

News Report
Asian markets climbed Thursday and the dollar suffered further across-the-board losses after the head of the Federal Reserve all but guaranteed an interest rate cut this month.
In the first day of closely watched congressional testimony, Jerome Powell said the case for lower borrowing costs “had strengthened” owing to headwinds caused by global trade uncertainty.
The comments sparked much-needed relief on trading floors around the world, which had suffered steep losses at the start of the week in reaction to a blockbuster US jobs report that dented hopes for a steep cut at the Fed’s next policy meeting.
US equities surged, with the Nasdaq ending at a record high and the greenback going into retreat, and the trend continued into Asia.
Hong Kong jumped 0.8 percent and Shanghai added 0.1 percent.
Tokyo stocks rose on Thursday, extending US rallies on growing expectations of a rate cut, while Nintendo surged after the game giant unveiled a scaled back, cheaper version of its Switch console.
The benchmark Nikkei 225 index gained 0.51 percent, or 110.05 points, to close at 21,643.53, while the broader Topix Index was up 0.47 percent, or 7.31 points, at 1,578.63.
“The Japanese market took over a positive lead from New York, where investors welcomed dovish testimony from Federal Reserve Chair Jerome Powell” that offered the prospect of looser monetary policy, said Toshikazu Horiuchi, a broker at IwaiCosmo Securities.
“The dovish remarks prompted a strong yen against the dollar but hopes for a US rate cut had a bigger impact,” Horiuchi told AFP.
The dollar fell to 107.98 yen in Asian afternoon trade from 108.46 yen in New York the previous day.
“Investors are shifting their focus to individual shares as corporate earnings season is set to begin,” he added.
In Tokyo, Nintendo jumped 4.15 percent to 41,660 yen after it announced the release of a new portable game console, the Nintendo Switch Lite.
The console will start selling in late September for $200, building on the huge popularity of the original Switch.
Market heavyweight and Uniqlo casual wear operator Fast Retailing closed up 1.15 percent to 67,650 yen.
After the closing bell, it announced gains in both net profit and revenue for the nine months to May on a strong performance overseas, leaving its full-year forecast unchanged.
Chip-making equipment manufacturer Tokyo Electron rallied 1.55 percent to 16,660 yen with chip-testing equipment maker Advantest up 1.48 percent at 3,080 yen.
But automakers sank on a strong yen as Toyota lost 0.62 percent to 6,865 yen with Honda down 0.54 percent at 2,844 yen.
Seoul was up 1.1 percent, Sydney rose 0.4 percent, Singapore climbed 0.7 percent and Taipei put on 0.4 percent.
Manila, Wellington and Jakarta also shifted into positive territory.
In Mumbai, domestic equity benchmark BSE Sensex jumped over 200 points in early trade Thursday tracking strong cues from global markets after US Federal Reserve Chairman Jerome Powell hinted at a rate cut soon.
The 30-share index, however, gave up some gains to trade 106.35 points, or 0.28 per cent, higher at 38,663.39 at 0930 hours. Similarly, the broader Nifty rose 33.80 points, or 0.29 per cent, to 11,532.70.
Top gainers in the Sensex pack included Vedanta, Tata Steel, SBI, Tata Motors, ONGC, PowerGrid, Yes Bank, Sun Pharma and M&M, rising up to 2 per cent.
On the other hand, Bajaj Finance, TechM, Asian Paints, Infosys, ICICI Bank, Hero MotoCorp, Bajaj Auto, Kotak Bank and TCS fell up to 1.50 per cent.
In the previous session, the 30-share gauge settled 173.78 points or 0.45 per cent lower at 38,557.04; and the Nifty ended 57 points, or 0.49 per cent, lower at 11,498.90.
On a net basis, foreign institutional investors sold equities worth Rs 604.94 crore, while domestic institutional investors purchased shares to the tune of Rs 667.40 crore, provisional data available with stock exchanges showed Wednesday.
Domestic equities rebounded amid positive cues from Asian and US equities that got a boost after US Fed chair’s congressional testimony.
According to reports, Powell reignited hopes of a US interest rate cut later this month.
In his testimony on Wednesday, Powell confirmed that the US economy was still under threat of a slowdown, and that the Fed was ready to act as appropriate”, reports said.
Meanwhile, the Indian rupee rebounded 25 paise to 68.33 against the US dollar in early trade Thursday, in tandem with other emerging market currencies after Federal Reserve chief Jerome Powell bolstered expectations of a rate cut later this month.
However, rising crude oil prices capped the gains.
At the interbank foreign exchange market, the domestic unit opened on a firm footing at 68.31, but soon pared some gains to trade at 68.33, up 25 paise over its previous close.
The rupee had declined by 7 paise to close at 68.58 against the US dollar Wednesday, pressured by persistent foreign fund outflows and firming crude oil prices.
US Federal Reserve Chair Jerome Powell told a congressional committee Wednesday that flagging global growth and trade tensions continue to weigh on the US economic outlook and the central bank is ready to “act as appropriate” to boost growth.
Investors are wagering on a rate cut by the Fed as early as this month.
In early trade London rose 0.3 percent, Paris added 0.4 percent and Frankfurt put on 0.2 percent.
“One of the principal drivers of soaring stock market valuation is the thought that easy monetary policy will bolster the US economy, which isn’t struggling, and spur on an even more scintillating stock market rally for the remainder of 2019,” said Stephen Innes at Vanguard Markets.
While the direction of rates is expected to be downward this year, there are conflicting opinions on how deep July’s cut will be and how many more there will be this year.
OANDA senior market analyst Alfonso Esparza said: “A July rate cut is fully priced in but a stronger-than-forecast (jobs) report in June put a question mark on how many more cuts the Fed needs to make.
“The trade war with China is a major factor and if there is an agreement in the short term the central bank could leave it at one and done for the year.”
Traders are now looking forward to Powell’s second day on Capitol Hill as well as the release of inflation data, with observers saying a weak reading could revive hopes for a big July reduction.
The dollar continued to struggle, with the pound, euro and yen all building on Wednesday’s gains, while high-yielding, riskier units were also well up. South Korea’s won was 0.8 percent higher, South Africa’s rand 1.6 percent up and the Australian dollar jumped 0.7 percent.
Oil prices extended the previous day’s surge that came on the back of data showing a bigger-than-expected plunge in US oil inventories as well as a brewing storm in the Gulf of Mexico that could hit production.
WTI jumped 4.5 percent, while Brent surged more than five percent Wednesday, while British accusations that Iranian boats tried to “impede the passage” of a British tanker in the Strait of Hormuz reinforced geopolitical concerns.
The weak dollar also sent the price of gold rallying two percent to sit around $1,420.